Interregional Competition

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SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS JULY, 1981CURRENT AND DEVELOPING ISSUES IN INTERREGIONAL COMPETITIONAND AGRICULTURAL TRANSPORTATION

Marc A. JohnsonThis paper identifies current and developing of midwestern feedgrain imports into the South.issues in interregional competition and agricul- Current and developing issues in interregionaltural transportation. These topics are related to competition and agricultural transportation re-the extent that the cost and quality of transporta- search and extension can be identified not onlytion services is one major determinant of the by current market situations, but also by the pro-economic distance between regions. fession's perception of the types of issues thatInterregional competition analysis was intro- can be addressed under these categories and theduced to agricultural economics in the late 1930s, approaches used to analyze the issues. The ap-with the stimulus of agricultural research funds proach taken here is to consider the profession'sauthorized by the Bankhead-Jones Act of 1935, scope in problem definition and theoretical andunder the leadership of Sherman E. Johnson and empirical analytical approaches in these areas, asJohn D. Black. Interregional competition de- well as evolving topical issues. Interregionalveloped as a synonym for regional comparative competition is considered first.advantage. Interregional competition analysis isa general set of tools designed to measure re-gional comparative advantage. The role of these INTERREGIONAL COMPETITIONapproaches is to reveal which industries can besustained in various geographic regions, for the Sherman E. Johnson composed the charge ofpurpose of guiding efficient resource allocation. interregional competition analysis in 1937 afterTreatment of interregional competition in this studying the definition and the determinants ofpaper will be limited to this original scope of in- comparative advantage: "Agricultural econo-terregional competition analysis, omitting con- mists . .. have attempted to define comparativesideration of subsequent developments in spatial advantage in terms of the tendency of an area toequilibrium tools relating to optimal plant loca- seek the most remunerative use of its productivetion and commodity flows. resources in view of its alternatives in produc-Agricultural economists have shown interest in tion, and in view of the market conditions whichagricultural transportation for an even longer result from the demand for various products andtime. Recent interest includes a Great Plains re- from other areas producing in accordance withgional project, GP-10, which addressed transpor- their best alternatives" (p. 225). Under assump-tation issues in the 1960s; and a 1965 Denver con- tions of full employment and perfect competi-ference, resulting in a book entitled Transporta- tion, market prices of factors and products aretion ProblemsandPolicies in the Trans-Missouri used to determine comparative advantage (Sea-West (Davidson and Ottoson). When the 1970 ver, p. 1,368).Penn Central Railroad bankruptcy threatened Regional comparative advantage is determinedrural railroad services, and the 1972-73 Soviet by factor endowments, the nature of other re-grain sale clogged the grain transportation and gional factor supply determinants, and the naturestorage system, interest in agricultural transpor- of regional commodity demand determinants. Attation blossomed in the Midwest and Northeast. least one resource must be immobile. Typically,Despite the South's good fortune in being spared land and its attributes are assumed immobile.transportation crises, transportation remains an Sherman Johnson listed immobile factors that de-important agricultural input industry. Factors termine regional advantage and disadvantage assuggesting that transportation issues will be of physical (climate, soil, surface, water supply);greater analytical interest in the South in the fu- locational (the relation to population, markets,ture include the rapid trend of transport price and transportation); biological (prevalence ofincreases, the vast changes in transport regula- pests, diseases, and resilient varieties); humantion, the relatively rapid increase in petroleum- (the structure and density of population, nation-based fuel prices, and the increasing importance alities, educational attainment, and rates of

Marc A. Johnson is Associate Professor of Economics and Business, North Carolina State University.The author gratefully acknowledges the helpful comments of Kenneth Casavant. Edmund Estes, Stephen Fuller, Richard King, E. C. Pasour, Jr., Lynn Robbins, Orloorenson, and Stanley Thompson.Journal series paper 6923 of the North Carolina Agricultural Research Service.

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work); capital (extent and condition of existing tions have been limited to single-commodity in-plant and infrastructure); historical (skill and dustries.' Single-commodity models violate thereputation for reliability); and institutional (taxa- opportunity cost foundations of regional spe-tion, regulation, cooperative organizations, and cialization. Comparative advantage theory statespatterns of ownership and control). These im - that entrepreneurs in different regions will tendmobile factors of production advantage deter- to specialize in production of commodities formine the charge of interregional competition which they hold a comparative advantage, oranalysis: "We . .. need to begin by analyzing all comparative cost, and trade for other com-of the factors contributing to the production ad- modities. The theory is based on opportunityvantages and disadvantages of an area at a given cost. Given an endowment of an immobile re-time, and then attempt to determine the relative source, producers in region A may be able topermanency of each factor and to study the pos- supply two goods at prices lower than producerssible changes in its effects over a longer period" in region B would offer, but be unwilling to do so(Johnson, p. 227). because of an opportunity to specialize in pro-This is a broad conceptual charge. But how far ducing the commodity for which they hold rela-can it be carried out in practice? Can one mea- tively the greatest advantage and trade for thesure comparative advantage? Why would one other.want to measure comparative advantage? Single-commodity industry location modelsobscure the opportunity costs of regionally en-dowed resources inherent in the comparative ad-Can One Measure Comparative Advantage? vantage concept (e.g., Schrader and King; Byr-kett et al., Grise; Ryland and Guise). Gordon

Sherman Johnson (pp. 237-38) and Mighell King recognized this problem in 1963 in anand Black (pp. 294-300) outlined tremendous evaluation of the Schrader-King cattle feedingdata needs to apply interregional competition location study: "The present model of feedlotanalysis. In those early days, W. C. Waite ex - location singled out one activity in the feed-pressed doubts about the empirical applicability livestock complex for analysis, and thus is notof interregional competition analysis. One can entirely satisfactory from the view of interre-speak in general terms of relative, regional ad - gional competition and the concept of compara-vantages and comparative advantage, he said, tive advantage. Although the quantification of a"... but as we attempt to pin the discussion more complex model, incorporating alternativedown to more and more specific problems we livestock products, is theoretically feasible,find the concept becoming more and more elu- present knowledge of some of the key variablessive and difficult to examine precisely. More- such as regional feed conversion efficiency seri-over, the factual data become increasingly dif- ously limits its potential usefulness" (p. 104).ficult to assemble . . . The list of qualifications Lee Day has argued that the bias introduced ingrows and grows and when we finally arrive at interregional competition models from not con-logical exactness, we have the thing in a straight sidering commodity interactions is largely insol-jacket. The creature looks strange indeed and so uble (p. 193). When one tries to limit the size of afar removed from actual life that we wonder problem by selecting commodities and areas toabout its usefulness in the analysis of current consider, one biases the results. Transportationproblems" (pp. 238-39). Awesome data re- models and reactive programming models usingquirements limited early applications of interre- explicit supply functions, and activity analysisgional competition analysis to a collection of re- using implicit supply functions all suffer the samegional supply response studies for a single com- sources of bias: omitted commodities, regionalmodity, milk (Mighell and Black, pp. 10-11). specification and aggregation. Recent studies

Introduction of mathematical programming al- verify these sources of bias. Pendse and Youdegorithms and computers tempted agricultural show that introduction of other commodities foreconomists to devise large models to handle the backhaul opportunities can affect transfer costslarge amounts of data required. Early conceptual sufficiently to change regional, "optimal" flows.models made room for multiple-commodity Byrkett et al. show that results of a cattle feedingtrade-offs, but used rigid economic functions location model are sensitive to the way the origin(Judge; Hall and Heady). Reactive programming and destination regional configuration is se-(Seale and Tramel) and simultaneous equations lected.methods (Lee and Seaver) have injected price- Effective measurement of comparative advan-responsive supply and demand information into tage requires incorporation of multiple-these models. commodity opportunity trade-offs, that is, op-However, applications of interregional com- portunity costs. Estimated commodity supplypetition analysis suffer from two deficiencies in and demand functions are subject to fixed levelsfundamental economic principle. First, applica- of activity in other commodity industries.

'Fedeler and Heady provide an exception. These authors test the effects of transportation system changes on the location of crop commodity production; livestockcommodities are omitted.

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Evaluating effects of a change in the price or Can one measure comparative advantage? No.quantity in one market without allowing for The insoluble problems of including all of the rel-change in other markets is a partial equilibrium evant markets simultaneously and measuring op-solution; comparative advantage is a general portunity costs of resources in unobservable sit-equilibrium concept. Bressler and King concep- uations prevent measurement. A detailed vis-tually show the type of commodity interaction ualization of the invisible hand is a prerequisite.required with use of interregional offer curves(pp. 279-325). But this is empirically impractical. Why Measure Comparative Advantage?The second, and related, fundamental viola-tion of economic principle lies in the nonmarginal At times, interregional competition models areuse of "competitive equilibrium" prices to ease used in a normative sense to represent how andata collection. In pure competitive equilibrium, industry should be structured to enhance effi-market prices of resources and products repre- ciency or welfare and to prescribe adjustmentssent marginal opportunity costs and markets are accordingly. That is, if an observed price basisseparated locationally and temporally by only separating two markets is greater than thetransportation and storage costs (prices), respec- model-estimated basis, a market imperfection istively. If the analyst believes the markets are thought to have been discovered. The normativeworking so well, it is unclear why he or she usefulness of interregional competition results iswould want to measure comparative advantage; suggested by Sherman Johnson (pp. 235-37) andcomparative advantage would be visible to the by Mighell and Black (p. 3) as a guide to publicobserver. If the analyst believes the markets are action to influence private action.not working so well, then prices would not repre- The chief problem in using interregional com-

sent marginal opportunity costs, and markets petition analyses to judge industry efficiency lieswould be separated by other than transportation in omission of many decision variables that areand storage costs; to use prices as parameter es- important to decision makers (a source of bias).timates would yield biased results and any pre- In 1937, W. C. Waite warned that, although somescriptions made would be erroneous. immobile factors of production advantage areMuch of the price data used in interregional constant within regions, "as we come closer tocompetition analysis clearly does not represent a the individual farm there are multitudes of varia-competitive equilibrium. Many transport rates tions and a wide variety of factors still remain-are regulated. Prior to 1981, the railroad and ing" (p. 239). An economic analyst cannot per-common carrier trucking industries were charac- ceive the information costs and the value ofterized by cartels with limited entry and price production plant dispersal to control risk, as de-protection governed by the Interstate Commerce cision makers perceive these factors (Pasour andCommission. Tobacco, sugar, peanut and cotton Bullock). After the 1980 summer heat wave de-allotments, marketing order quotas, import re- stroyed broiler flocks in Arkansas, it is difficultstrictions, and grain price supports all represent to imagine that broiler producers would considerdivergences from pure competitive equilibrium it efficient to locate plants solely on the basis ofthat prohibit measurement of pure comparative regional consumption quantities and transportadvantage with market price data. This is not a rates. Results of models that grossly abstractproblem in itself if the analyst makes clear the from the multitude of decision variables faced byassumption that these regulatory diversions from decision makers cannot serve as standardspure competition are assumed as permanent, against which to judge the quality of entrepre-exogenous institutional characteristics attached neurial decisions.to resources. Welfare measurements derived from single-The problem arises when the analyst uses a commodity interregional competition models notsingle-commodity model and market price data only suffer the bias of obscuring opportunityto measure the change in comparative advan- costs, but also by making interpersonal utilitytages when one of these permanent, exogenous comparisons. When producers' and consumers'rules is changed. If prices in one market repre- surpluses are merged to estimate net welfare ef-sent opportunity costs at one equilibrium posi- fects of regulations, the implicit assumption istion, assuming certain exogenous rules, these made that the marginal utility of income is equalprices no longer represent opportunity costs at a for all affected individuals. Leo Blakley and hisdifferent equilibrium position after a nonmarginal colleagues are careful to identify group gains andchange of conditions. Nonmarginal changes send losses from removing market restraints withoutwaves through many markets, with feedbacks af- netting the effects (Blakley and Kloth; Blakleyfecting opportunity costs in each market. If the and Riley).analyst is simulating competitive data, rather The previous discussion suggests that interre-than using market data, there is a measurement gional competition analysis cannot fulfill eitherproblem of not including all of the variables used the original objective of measuring comparativeby decision makers. This will be discussed advantage or prescriptive purposes. Is there afurther in the next section. role left for interregional competition analysis?

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There do remain roles of seeking an understand- the relative opportunities of tobacco and peanuting of the dynamic market processes that cause production in North Carolina;industry location changes, and of developing out- 4. increasing fuel prices will increase the rela-look information to assist private entrepreneurs tive opportunity for fresh vegetable production inand government producers in making investment the South and decrease the relative opportunitydecisions. for fresh vegetable production in California;The agricultural economist should not take 5. the demographic shift from the Frost Belt tohimself so seriously. Rather than tell clients the Sun Belt, by moving consumption centerswhere they should be, the analyst can concen- nearer to fresh produce production areas will in-trate on helping his client determine for himself crease the relative opportunity of fresh fruit andwhere he should be and how to get there. By vegetable production in the Southeast and reducespending fewer resources on data collection and the relative opportunity for fresh fruit and vege-more resources on simple conceptual modeling, table production in California;economists can develop a greater understanding 6. railroad rate deregulation will increase rela-of how market forces are affected by various tive opportunities for grain storage on railroadstimuli. This kind of information would be useful mainlines and reduce relative opportunities forto decision makers seeking to improve their grain storage off of railroads and on rail branchdecision-making procedures. lines;

The author proposes construction of opportu- 7. increasing irrigation water prices will in -nity gradients as a new approach to interregional crease the relative opportunity for cattle feedingcompetition analysis. By concentrating the focus in eastern Nebraska and decrease the relativeof empirical studies on a few representative opportunity for cattle feeding on the High Plains.points in space rather than trying to cover all There are numerous other issues that likelyspace, the analyst could consider more alterna- will affect relative regional opportunities of ag-tive opportunities. Feasibility and estimated, ex ricultural industries. The deregulation mood ofante opportunity costs of alternatives would be the country suggests that agricultural economistsconsidered that are not now considered by inter- could prepare decision makers with informationregional competition models. One would not be on likely changes in relative opportunities if pricemeasuring exact magnitudes of change, but protections of marketing orders and milk com-seaching for likely directions of change in oppor- missions were abolished. The same can be saidtunity. If there is any truth to the assumed simi- for changes in subsidies implicit in internationallarity of opportunity within regions, then com- trade barriers and preservation of unprofitableparative results for geographic points would.be branch rail lines. Destruction of the railroad andrepresentative of regional comparisons. The em - motor carrier cartels and changes in the "com-phasis on numerical estimates would be replaced mon carrier" system of freight transportationby emphasis on directional change, decision al- regulation could have substantial effects uponternatives, and probabilities of change. Results relative spatial opportunities in agricultural in-would be more understandable to clientele dustries.groups, as well as more complementary with in- Agricultural economists must develop somedividual decision-making activity, fresh tools to handle these issues. Continued re-finement of the empirical detail of single-Topical Issues commodity models will not improve on mea-surement of relative opportunities. Evaluating ef-

There are numerous issues of current interest fects on relative opportunities of nonmarginalthat can be handled with an opportunity gradient market and institutional changes will not be doneapproach. A few of these topics can be stated in accurately with price data applicable only toterms of refutable hypotheses: marginal changes. The principles of interregional1. Aflatoxin-related corn quality uncertainty competition can continue to aid decision makersand introduction of contract rail rates will reduce to make better decisions in a dynamic, evolvingsubstantially the relative opportunity of corn market process. But new tools are needed.production in the South and enhance the relativeopportunity of corn production in the Midwest;2. corn quality uncertainty and introduction of AGRICULTURAL TRANSPORTATIONcontract rail rates will increase the relative op-portunity of broiler production in Mississippi, Attention to agricultural transportation issues,Louisiana, Texas, and Arkansas and decrease with exceptions, suffered the same problems asthe relative opportunity of broilers for North interregional competition analysis. Transporta-Carolina and Georgia; tion issues have been treated as competitive equi-3. removal of the flue-cured tobacco and librium issues and analyzed with plant locationpeanut allotment programs will increase the rela- and commodity flow models. Market and policytive opportunities of tobacco and peanut produc- changes are represented as exogenous, synthe-tion in South Carolina and Georgia and decrease sized changes in the level of transportation rates.62


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The effects of these changes on agricultural in- tation issue during the last decade was devoted todustries are studied with competitive equilibrium evaluating railroad line abandonments (Andersonmodels that assume perfectly elastic transporta- et al.). The first journal description of the rail-tion supply at a designated rate, perfectly inelas- road abandonment issue was provided by Gallo-tic or product-price-responsive quantities to be way in 1970.shipped, and a shipper decision rule as simple as One approach to rail abandonment studiesselecting the mode of transport with the lowest uses either a modified Stollsteimer plant locationrate. model with transshipment, or a network model toThese studies represent estimates of the effect optimize a set of transportation and storage facil-on agriculture of exogenous transport market ities for handling grain (Tyrchniewicz and Tos-changes using single-commodity models. Unfor- terud; Baumel et al., 1973; Berglund and Ander-tunately, competitive equilibrium methods using son; Baumel et al., 1977; Larson and Kane; Laddsimple assumptions reveal little about the ag- and Lifferth). Perfectly inelastic supplies andricultural transportation market composed of demands for individual commodities, and per-carriers as suppliers, and agricultural shippers fectly elastic supplies of each modal transporta-and receivers as demanders. tion service are assumed. These assumptionsimply that all transport savings and losses result-Transportation Research in the 1970s ing from a change go to transport demanders.Each study relies on the simple decision rule thatDuring the seventies, most efforts were de- commodities move on the mode-destinationvoted to grain flow studies, identification of pol- combination offering the highest commodityicy issues, studies of effects of relative rate price net of transport rate, and that temporalchanges on interregional flows of single commod- sales patterns are fixed. Each evaluation tests theity industries, and railroad line abandonment viability of whole lines or groups of lines, obscur-evaluations. An example of these emphases is ing the marginal contributions of each rail link.the three objectives adopted by the north central All of the tests conclude that the average effect ofregional research project on transportation, rail line abandonment on agriculture is negligible.NC-137, which was formed in 1975: (a) to survey A second approach applied to railroad linecommodity flows and project volumes of trans- evaluation is the conventional benefit-costportable surplus to 1980, 1990, and 2000; (b) to method of comparing benefits and costs of ac-develop a large interregional competition model tivities with and without railroad service (Rauschthat optimizes a transportation system for agri- et al.; Johnson, 1976a, 1977). Applications ofculture; and (c) to evaluate likely effects of benefit-cost procedures have shown that por-transportation policy changes. tions of lines considered for abandonment can beGrain flow surveys have sought to identify viable when the whole line considered as a unit

volumes of transport by mode of carrier. In an fails to meet investment criteria (Johnson, 1976a;inductive fashion, results of these surveys yield Johnson et al., 1978). Benefit-cost studies of ex-information that is useful in problem definition. tending water navigational channels also haveHowever, these surveys have not been used to been undertaken (e.g., Shruben et al.).obtain data for hypothesis testing. Policy issue The benefit-cost procedures have assumedidentification largely has been conducted through perfectly elastic supplies of transportation ser-a series of discussion papers of the "ask - the - vices and simple projections of historical basequestions - but - don't - answer - them" variety traffic levels. Transport quantities demanded(Kriebel and Baumel; Mennem; Shaffer). vary in response to what shipper firm managersSeveral studies have evaluated effects on ag- estimate ex ante on questionnaire surveys, butricultural industries of changes in transportation not in response to a behavioral demand function.rate structures (Wright; Baumel et al., 1973; These studies rely on the same, simple decisionFedeler and Heady; Johnson and Mennem; Fur- rule as the first group of studies. Gerald criticizestan et al.; Belcher et al.; Bunker; Shouse and the benefit-cost procedures for assuming thatJohnson). Al l of these studies used normative traffic volumes and trade patterns remain con-methods and assumed perfectly elastic transpor- stant after a change in the rail network.tation supplies; perfectly inelastic commodity Initial efforts in analyzing rural road issues bysupplies and demands (except Furtan); and a agricultural economists are following the samesimple transport choice rule of cost minimization pattern as efforts devoted to rail abandonmentor site price maximization, where the cost of evaluations. Numerous descriptions of the issuestransport is the freight rate. These are competi- were released, followed by mathematical pro-tive equilibrium issues, treated with competitive gramming, transshipment model (Kirby et al.),equilibrium tools, with substantial limitations and benefit-cost (Lamb and Pine; Walzer andarising from model specification and parameter Stablein; Johnson, 1979; Tucker and Thompson)estimation. evaluations of rural road investments. The vol-Probably the greatest amount of research re- ume of analytical work in this area has been smallsources applied to a single agricultural transpor- relative to the magnitude of the problem.

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The Agricultural TransportationMarket transport service quality on demand for modalservices (Daughety and Inaba; Johnson 1976b;Most of the foregoing studies represent what Miklius et al.; Patrick and Thompson). These

might happen to agricultural markets as a result studies show that agricultural demand for trans-of exogenous changes in transportation markets. port modal services is responsive to own price,The issues are relevant, but they add little to our other modal prices, perishability of the commod-knowledge of the transportation market. Induc- ity being transported, and various service qualitytively, one might conclude that, since interre- attributes. Consequently, rigid transport demandgional competition studies have shown that assumptions are not valid.transport rates do not affect the location of crop On the supply side, issues of port congestion,production (Fedeler and Heady) or cattle feeding the railroad car shortage, and effects of regu-(Byrkett et al.), total market demand for trans- latory commodity restrictions have been ad-portation is price inelastic. One also might induce dressed. Fuller and Paggi provide an examplefrom the lack of value found for collector rail that questions the standard assumption of per-lines in railroad abandonment studies that rail- fectly elastic transport supply. They use a sto-road demand is price elastic in the presence of chastic queueing model to estimate the level ofalternative modes. Little is known about trans- congestion costs associated with the uncertainportation supply because transport services have timing and amplitude of seasonal grain truckbeen introduced and removed from models in a arrivals at the Port of Houston.nonmarginal, with-or-without fashion and as- Studies of railroad car supply also show trans-sumed to be provided with perfectly elastic sup- portation supply not to be perfectly elastic. Fel-ply. The urgings of Richard King (1979) to formu- ton has developed the applicable economic prin-late explicit, refutable, relevant hypotheses for ciples behind rail car capacity supply and showsthe progress of our science are appropriate in the the relationship between utilization and capacitystudy of agricultural transportation markets. A and the types of incentives that might enhancefew studies have addressed issues of the agricul- freight car capacity without necessarily increas-tural transportation market. ing the fleet size.

Easter et al. included infrastructural inputs in The multi-commodity backhaul issue has beenaggregate, regional, agricultural production func- treated in two studies. Pendse and Youde intro-tions to measure the marginal contribution of duced backhauls exogenously into an interre-rural road investments in two regions of India. gional competition model by reducing truck ratesResults provide evidence that the marginal pro- by half to represent a 100-percent probability ofductivity function for roadway investment is a obtaining a backhaul of a commodity outside thedeclining function, and that marginal productiv- model. Johnson and Tyng distinguished regula-ity estimates provide a means to estimate a de- tion-determined empty mileage from logisticallyrived demand function for rural roads.

2 This de- determined empty mileage to measure likelydining, regional marginal productivity of trans- truck cost and fuel savings from deregulatingport facilities may provide the explanation for soybean meal for truck transport in Northrail abandonment studies showing little value of Carolina. These studies show the importance ofcollector rail lines in the Midwest, where rail and multiple-commodity interactions in agriculturalroad networks are dense, and showing higher transport markets.values on the Plains, where networks are less These transportation market studies show thatdense. transportation economics is not just a spatialSeveral attempts have been made to estimate equilibrium problem. There is a transportationcharacteristics of the derived demand for agricul- market to consider. Supply functions have di-tural transportation. In an early work, Sorenson mensions of price, capacity, and capacity utiliza-identified railroad rate gradients for winter wheat tion. Carriers operate with multiple-producton the Plains, where revenue-to-variable cost characteristics, which implies that excess ca-ratios increased for elevators located farther and pacity is not necessarily a sign of poor marketfarther from barge-loading river ports. More evi- performance (Pfouts). Cost functions are com-dence of this kind could convert the captive plex; the level of coal and cement movementsshipper issue from a matter of speculation to a may be as important as the level of soybeanmatter of elasticity estimation and documenta- movements in determining the carriers' opportu-tion. A normative study of seasonal railroad rates nity costs of moving corn. Surges in demandin Oklahoma suggests that transportation com- slide carriers up and down supply functions,petitiveness is location specific, depending on causing price variation in unregulated markets,proximity to final markets and river ports but not necessarily in the same sequence as vol-(Shouse and Johnson). In that study, price elas- ume surges in particular, single commodities.ticities of demand for rail service range from Demand surges also suggest that capacity-1.02 to -3.7. "shortages" do not necessarily represent poor

Other studies have estimated the influence of market performance.2Spriggs uses these results to form a benefit measure for rural road investment evaluations.

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Transportation demand has dimensions of The most useful work for agricultural eco-price, service quality, locations and capacities of nomic research and extension on the demandstorage facilities, and locations and capacities of side will be to help shippers and receivers iden-production facilities. Shippers of many com- tify and evaluate how their new set of transporta-modities demand transport services of the same tion alternatives will affect their production andcarrier for use of the same equipment. Price regu- marketing activities. The new set of alternativeslation obscures demands for service quality by is not guaranteed to be larger, but likely will bemuffling price premiums for added services. Di- different.rectional imbalance in the volume of transporta- Several specific issues will have broad effects.tion demanded may mean that the price charged Exemption of fresh fruits and vegetables for railfor movement from point A to point B is different movement has proven to be useful in providingthan the price charged for movement from B to either lower rates or better service for some indi-A. (This is evident currently in North Atlantic viduals. This action will not help everyone. Fruitocean shipping.) and vegetable assembly for long haul movementThe surface barely has been scratched on un- may become more concentrated, but at least anderstanding the agricultural transportation mar- additional market choice was introduced.ket. Basic supply and demand characteristics Charges have been lodged that flexible railroadmust be discovered before the agricultural eco- grain rates would destroy the American grainnomics profession can make any credible attempt merchandizing system. There is no doubt thatto evaluate the likely effects of policy and market some of the risk in the grain trade that has beenchanges. Demand characteristics include logis- borne by the railroad industry would be shiftedtical attributes of commodities, for example, back to the grain industry. The question lies inperishability, seasonality, inventory costs, and whether rate flexibility will generate sufficientmarket channel structure. Supply characteristics incentives for railroads to provide more move-include capacity, route flexibility, regulatory re- ment capacity for the industry, thereby reducingquirements, and directional complementarity the risk of future car shortages.with other commodity movements. Measure- Charges have been made that rate flexibilityment of demand and supply characteristics suf- would leave many shippers and receivers cap-fers similar sources of bias that interregional tives of a single railroad, which could extractcompetition models are subject to, such as omit- monopoly rents. The captive shipper issue is ated variables and aggregation. Again, if econo- question of the competitive position of a shippermists can be satisfied with developing an opera- with respect to transportation, at his particulartional conceptual understanding of how the ag- location, in his particular commodity market. Itricultural and transportation industries interact in is a question of access to logistically feasiblea dynamic market process, without striving for transportation alternatives and not a question ofprecise and generally applicable market parame- transport prices. There is a normative issue ofter estimates, economists can shed light on whether a shipper who has become accustomednumerous topical issues. to subsidies by way of cross-subsidization is en-titled to continued subsidies. But economistsThe Issues might assist in developing transport alternativesand estimating whether product substitutionTopical issues in agricultural transportation would be advantageous in some locations. Econ-are numerous. This summary of some of the is- omists also could educate regulators on the na-sues will appear anti-agriculture and pro-carrier. ture of agricultural transportation markets toThe purpose is not to cast value judgments, but help them arrive at a more meaningful test ofto question the way issues raised by parochial monopoly power than the market dominanceagricultural interests must be questioned if the criteria.economics profession is to approach these issues The combined effects of railroad mergers andobjectively, contract rates likely will improve service reliabil-The largest package of issues in agricultural ity and lower some rates. Commodity exemp-transportation in the 1980s relates to effects of tions and easier truck entry into regulated com-transportation deregulation on agriculture. The modity markets likely will improve truck ca-Motor Carrier Act of 1980 eases entry into regu- pacity utilization. Identification and evaluationlated commodity movement, exempts feed prod- of individual or joint shipper access to these al-ucts from economic regulations, and establishes ternatives will provide a useful service to Landa somewhat more competitive method of rate set- Grant University clientele.ting. The Staggers Rail Act of 1980 introduces On the supply side, economists first must rec-rail rate flexibility and railroad rate and service ognize that carrier firm managers have many ag-contracts, restricts the scope of rail rate bureaus, ricultural and nonagricultural opportunities andand eases restrictions on railroad mergers and limited capital. Efforts will be expended whereline abandonments. Interstate Commerce Com- their highest net returns are expected. Carriermission initiatives have exempted certain piggy- managers can be expected to be oblivious to anyback categories from economic regulation. remnants of farm fundamentalism.

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Greater rate and operating flexibility will nec- Interregional competition studies are attempt-essitate closer monitoring of market forces to ing the impossible and, in the process, creatingfind opportunities. New opportunities for biased estimates of where industries should bemulti-modal connections are likely. Previously located. With less attention to detailed datarestricted opportunities for backhauls are avail- gathering and more attention to thoughtful, logi-able. Transportation supply (prices and ca- cal modeling, economists can arrive at more un-pacities) will be responding to numerous changes derstandable and more believable estimates ofin opportunities, only some of which are agricul- the directions of changing regional advantage.tural. Issues to be addressed in agricultural transpor-tation include not only the effects on agriculture

of exogenous changes in transportation markets,CONCLUSIONS but also identification of basic transportationmarket supply and demand relationships, recog-

This paper proposed to raise doubts about the nizing transportation as an agricultural inputdirections of research in interregional competi- market. The structure of the transportation mar-tion and agricultural transportation, and to iden- ket is changing dramatically as the failures oftify current and developing topical issues in these regulation are being discovered. Agriculturalfields. There is no intention to question the mo- economists can help their clientele react totives or scholarship of those involved in these changing market opportunities and economistsimportant subjects in our profession. The inten- can identify remaining rules that need to betion has been to pause and take a look at what is changed.being done and to challenge its direction for the1980s.

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Interregional Competition